Basically, there are four different types of unemployment in Economics: structural, cyclical, frictional, and institutional unemployment. These four are different types of unemployment, having different effects and causes and critical factors.
Let’s look at the in-depth of all 4 of these unemployment types in economics.
- Structural unemployment
- Cyclical unemployment
- Frictional unemployment
- Institutional unemployment
Structural Unemployment
Structural unemployment comes when there is a technological change in the economic structure of the country. There are situations when technology changes in the labor market, resulting in the replacement of workers by machinery and the latest appliances.
One of the significant examples of structural unemployment is the replacement of horse-drawn transport when automobiles and cars came into being. Structural unemployment majorly occurs because keeping the human workforce on jobs that could be performed via machinery and other technological appliances is more costly, complex, stressful, and time-consuming.
Cyclical Unemployment
Cyclical unemployment occurs when there are economic upturns and downturns. For example, in recessionary periods of the economy, unemployment rises because there is less need for the workforce, and this leads to the dismissal of labor.
Alternatively, during periods of economic growth, unemployment declines because the economy definitely needs more workers and employees for more services and production of goods. This ultimately minimizes the unemployment rate.
Frictional Unemployment
Frictional unemployment is the type of unemployment that occurs as a natural result. It occurs when the market progresses.
For example, searching for a new job, getting compatible workers, recruiting new workers, and making the right decisions when it comes to selecting workers for the appropriate job everything takes time. You have to spend time and effort, and this ultimately results in frictional unemployment.
Institutional Unemployment
Institutional unemployment is the unemployment that results from long-term institutional factors in the economy. Factors like government policies, including general social benefit programs, restrictive occupational licensing laws, and high minimum wage floors, all contribute towards institutional unemployment. Moreover, discriminatory hiring and efficient wages also increase institutional unemployment in the economy.
What are the types of unemployment in economics?
There are different types of unemployment that are studied in economics. The four main types include frictional, structural, cyclical, and seasonal. Generally, we cannot calculate them directly, but these types are helpful ways of explaining unemployment, its causes, and its effects.
What is an example of open unemployment?
Open unemployment is the unemployment that occurs at some particular type of the year. For example, when there is a factory that is transparent due to an economic downturn or advancements in technology, the workers will face unemployment issues. This is because they cannot find similar jobs in some other places.
What type of unemployment occurs the most?
The most common types of unemployment include structural, frictional, cyclical, and seasonal. Among these, structural unemployment is one of the most serious types of unemployment and is one of the most common ones. Since it is involuntary, it takes a long time for its solution.
Undoubtedly, unemployment is the key factor depicting the health of the economy. Unemployment occurs when individuals who are capable of performing specific jobs are unable to find jobs in the market.
It is one of the severe issues that ultimately results in numerous effects and impacts on not only the individual itself but on the economy as a whole. There are four types of unemployment that occur in economics: institutional, frictional, cyclical, and structural.
All four of these are different from each other and have different effects and causes. Pay attention to the above article so you can understand what type of unemployment occurs, why, and what effect it produces.